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Oil slips on European manufacturing data

London, May 2, 2012

Oil eased on Wednesday, as weak economic data in Europe hit the demand outlook, countering more positive figures from China and the United States.

Brent crude for June slipped 10 cents to $119.56 a barrel by 0841 GMT, after settling 19 cents higher at $119.66 on Tuesday. U.S. crude for June was down 34 cents at $105.82.

The euro zone's manufacturing sector slipped further into decline last month as a downturn that started in the periphery appeared to be taking root among core members France and Germany, a survey showed on Wednesday.

Germany's manufacturing sector shrank at the fastest pace in nearly three years in April and manufacturing activity in France, Italy and Greece also retreated while unemployment in Germany and France rose.

'It does feel a bit like we are in a negative death spiral,' said Bjarne Schieldrop, chief commodity strategist at SEB in Oslo. 'Austerity measures over an extended period are showing up in disappointing economic activity.'

It was a different story in the United States. U.S. manufacturing growth in April hit its highest level in 10 months, while China's factory sector also expanded last month, government data showed on Tuesday.

Oil remains well below the highs above $126 per barrel seen in March, and the relatively small upward move on Tuesday after the strong U.S. data highlights the overall bearish tone, Schieldrop said.

'It seems like we are more sensitive to downside news, as even when there was stronger data from the United States, there was not much of a reaction in the Brent market,' he said. SEB has a forecast of $115 per barrel for the third quarter.

While Europe was the main concern of investors, lingering worries about the outlook for China, also helped to pressure prices.

'China is a concern, with new loans falling sharply last month. The question is whether the government's easing measures have come in time for a soft landing,' said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.

Chinese bank lending is estimated to have dropped 30 per cent in April from a month earlier as demand for credit declined, the official China Securities Journal reported on Wednesday.

Fears about disruption to supply from Iran have eased somewhat in recent weeks with more conciliatory words coming from Jerusalem and Tehran, which has also helped to keep prices off recent highs.

Even if there were to be further disruption from sanctions on Iran, action by other oil producers and possible inventory releases will mute impact on the oil price, Schieldrop at SEB said.

'Saudi Arabia can pump more oil, and we are seeing increased production from Iraq and Libya,' he said.

In the United States, crude oil stocks rose by 2 million barrels last week, the industry group American Petroleum Institute (API) said, less than expected.

Ahead of weekly inventory reports, a rise of 2.5 million barrels for crude, a sixth consecutive build, was forecast in a Reuters survey of analysts.-Reuters




Tags: China | Oil | US | Outlook |

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